Integrating Seasonal Oscillations into Basel II Behavioral Scoring Models

The article introduces a new methodology of temporal influence measurement (seasonal oscillations, temporal patterns) for behavioural scoring development purposes. The paper shows how significant temporal variables can be recognised and then integrated into the behavioural scoring models in order to improve model performance. Behavioural scoring models are integral parts of the Basel II standard on Internal Ratings-Based Approaches (IRB). The IRB approach much more precisely reflects individual risk bank profile. A solution of the problem of how to analyze and integrate macroeconomic and microeconomic factors represented in time series into behavioural scorecard models will be shown in the paper by using the REF II model.